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Financial distress, information asymmetry, and syndicate structure: Evidence from Japanese borrowers

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  • Lee, Sang Whi
  • Kwag, Seung-Woog (Austin)
  • Mullineaux, Donald J.
  • Park, Kwangwoo
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    Abstract

    This paper examines how borrower firm characteristics affect syndicate size structure in the Japanese loan market for the 1999-2003 period when the banking system is undergoing a major consolidation. We find that syndicates are smaller when borrowers have higher credit risk and when borrowers present larger information asymmetries to the lending group. Interestingly, however, these results are primarily driven by keiretsu (business group) firms. This suggests that the benefits of enhanced monitoring and superior renegotiation prospects are especially useful for banks participating in syndicated loans to Keiretsu firms in Japan rather than informationally opaque, independent firms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Finance Research Letters.

    Volume (Year): 7 (2010)
    Issue (Month): 2 (June)
    Pages: 119-126

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    Handle: RePEc:eee:finlet:v:7:y:2010:i:2:p:119-126

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    Web page: http://www.elsevier.com/locate/frl

    Related research

    Keywords: Financial distress Information asymmetry Syndicated loan Main bank Keiretsu;

    References

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    1. Sang Whi Lee & Donald J. Mullineaux, 2004. "Monitoring, Financial Distress, and the Structure of Commercial Lending Syndicates," Financial Management, Financial Management Association, vol. 33(3), Fall.
    2. Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January.
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    19. Pegaret Pichler & William Wilhelm, 2001. "A Theory of the Syndicate: Form Follows Function," OFRC Working Papers Series 2001fe05, Oxford Financial Research Centre.
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    Cited by:
    1. Pessarossi, Pierre & Godlewski, Christophe J. & Weill, Laurent, 2012. "Foreign bank lending and information asymmetries in China: Empirical evidence from the syndicated loan market," Journal of Asian Economics, Elsevier, vol. 23(4), pages 423-433.

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